Wednesday, February 13, 2013

The City of Regina’s Unquenchable Thirst for Bad Ideas

By Simon Enoch
Saskatchewan Office CCPA
February 13th, 2013

It seems the City of Regina just can’t get enough of bad deals. Hot on the heels of the City Plaza debacle and the stadium funding mess, the City has now announced its intention to enter into a 30-year contract with a private corporation to upgrade its waste water treatment facilities. Just as the City seems immune to the evidence that sports stadiums are a poor use of taxpayer money it seems equally oblivious to the mountain of evidence that essential public infrastructure should remain in public hands. In the case of contracting out wastewater treatment, the record is anything but reassuring.

In the United States, which has had almost thirty years of experience with private-public partnerships at the municipal level, the results of water privatization have been uneven at best and downright terrifying at their worst. The City of Atlanta is perhaps the most recent and high-profile case of privatized waste water treatment gone horribly wrong. In 1999, the City of Atlanta entered into a 20 year “operate and maintain” (O&M) contract with a multi-national consortium, United Water Systems Atlanta (UWSA), in what was then the largest municipal water privatization agreement in the U.S. As the CBC’s Fifth Estate reported, complaints about the quality of the water began almost immediately after the contract. Atlanta city councillor Clair Muller:

“We noticed a huge increase in customer complaints – everything ranging from the inability to get water service for a new house to having a meter changed if it was faulty. But more specifically: leaks. We were in a period of drought just about the entire time that United Water ran our system. And citizens just were infuriated by trickling or gushing water that would be running down the street because it seemed like such a waste. We were under water restrictions and yet the water was leaking from the pipes.”

By 2002, the city was accusing UWSA of numerous violations, including dangerously low staffing levels, failure to complete maintenance obligations (such as replacing broken fire hydrants) and violation of both state and federal safe drinking water laws. To add insult to injury, a 2003 city audit estimated that the privatization contract had only saved the city half of the projected savings promised when entering the deal. Ultimately, Atlanta severed it’s agreement with UWSA, with one city official explaining:

“We have a contract that doesn’t work; it simply doesn’t work…the residents of Atlanta cannot get good water under the contract, and United Water cannot make money under the contract.”

The Atlanta experience has served as a cautionary tale for other municipalities contemplating water privatization. ”This is a huge setback for privatization, and it’s going to have to give both cities and companies pause,” said Dr. Peter H. Gleick, president of the Pacific Institute. Even industry insiders view Atlanta as reflecting badly on the push to privatize municipal water systems. Andy Seidel, CEO of USFilter, blamed United Water for a slowdown in the development of large projects. “The Atlanta and Halifax fiascoes,” he said, “have hurt the image of the industry.”

As Seidel’s comment suggests, Canada has not been immune to the dangers of municipal water privatization. Much like Regina’s proposal, the city of Hamilton’s water treatment plant was contracted out in a P3 arrangement to Philips Utilities Management Corporation in 1994. The company ended up firing half of the workers employed in the utility, flooding 200 homes and businesses, and spilling 180 million litres of raw sewage into the water system – the largest sewage spill ever into Lake Ontario. After a series of renegotiations and re-contracting, costing the taxpayer millions, the city eventually took back the service. In light of Hamilton’s experience, many municipalities, including Edmonton, Vancouver, and Victoria decided not go move ahead with planned P3s for water treatment and delivery.

The fundamental problem with contracting out an essential public utility like water to a private corporation is that the private entity exists for one reason only – to make a profit. Multi-national corporations are not advocating for P3 partnerships out of some sense of civic duty, they believe there is money to be made in these deals. Public finance economist Randall Holcombe argues that in negotiations with a multi-national company, municipalities are almost always at a disadvantage. He explains the frequency of bad deals between corporations and municipalities as the inevitable result of the private corporation’s better bargaining position. According to Holcombe, privatizing firms have a bargaining advantage in drawing up privatization agreements because they have a wealth of previous experience within the industry. Often these firms have many existing agreements with other municipalities and they know what costs can be cut and where efficiencies can be gained. The municipality on the other hand usually has little or no experience with the private treatment of wastewater and what sorts of costs may be entailed, usually at the mercy of cost estimates supplied by private consultants that may have a vested interest in privatization. Holcombe concludes that what has generally been passed off as privatization in wastewater treatment would be better described as “an arrangement where the private firms are willing to produce a service in order to make a profit while leaving much of the risk of operating the business with the municipality to which it sells.” Privatize the profits, socialize the costs, not a bad deal!

Ultimately, we have to decide whether we want to have so vital a public service as water in the hands of an institution whose sole concern is the bottom line or with an institution that is at least democratically accountable to the public. One Atlanta resident’s thoughts on that city’s disastrous experience with privatization are worth concluding on:

”Is it possible to have private water work right?” Mr. Certain asked. ”I’m sure it is. But if you have a political problem in your city, you can vote in a new administration. If you have a private company with a long-term contract, and they’re the source of your problems, then it gets a lot more difficult.”

Simon Enoch is Director of the Saskatchewan Office of the Canadian Centre for Policy Alternatives. He holds a PhD in Communication and Culture from Ryerson University.

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About this blog

It was in the thirties, legend has it, that an old pioneer was asked how many good years Saskatchewan farmers had experienced, “Two”, he replied, “1916 and next year”.................................................. Next Year Country was a provincial magazine published by the Saskatchewan Waffle Movement in 1972 and was issued in various forms until 1983. This blog intends to contribute, not to a revival of the Waffle movement, but to the spirit of hope and optimism it reflected. We need this spirit again.